Bank of England sticks to its Remain script, but now does not forecast a recession

Just a few weeks ago we were facing recession according to official forecasts if we voted Leave. Now we are told there will be little or no growth instead. These forecasts are very flexible, and doubtless wrong.

The Bank should have waited to see proper data for output and activity for the first quarter or so after the vote before rushing in. It seems as if they are desperate to get the pound down, as the one and only thing that has been performing as they forecast pre the vote.

There is no need to fear, as some now do, that the Bank is running out of options to stimulate. As the Bank itself makes clear, it could have a bigger QE programme, it could widen the range of assets it buys in with created money, and it could expend the bank lending facility. It could also cut interest rates again.

I hope it does none of these things. I do not think they are needed. Triggering more asset inflation is not a good idea, at a time when we would like more UK citizens to be able to afford a home of their own. There is as yet no evidence of a collapse in demand or a serious likelihood of a Brexit induced recession. Real wages are rising strongly. We do not need the Bank to erode them too much by sparking a weak sterling leading to a higher rate of inflation.

The Bank admits it has to control inflation as well as avoid recession. Its latest actions do not seem to take its inflation duty seriously enough.

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43 Comments

  1. margaret
    Posted August 4, 2016 at 1:52 pm | Permalink

    That is very welcome news as many people are working to avoid a recession and they thought that whatever they did we would be heading that way.

  2. Beecee
    Posted August 4, 2016 at 2:04 pm | Permalink

    The Governor seems obsessed with fulfilling his own pre-Brexit prophecy!

    Borrowing costs are already very low so the 25 basis points and further ‘cheap’ money will probably do nothing for the economy. Another kick in the pocket however for senior citizens and other people saving for their future.

    What started as an emergency measure eight years ago seems to have become the norm.

    Thank you for your ongoing, insightful, analyses.

    • Lifelogic
      Posted August 5, 2016 at 10:57 am | Permalink

      Bank margins are about +2.5% up to 30% or more and large fees on top too. Often only 5 year maximum agreements too. The lack of competition in banking is the main problem.

  3. Anthony Makara
    Posted August 4, 2016 at 2:05 pm | Permalink

    How low can you go Mr Carney? Once again the BOE shows it is not the fount of knowledge, worst still it shows itself to be in the business of trying to quick-fix the economy rather than reacting to it in a measured way. I think the BOE is moving in the wrong direction and rather than cutting rates it should be putting rates up to protect consumers from imported inflation which amounts to around 40% of average monthly food shopping. How cutting rates is going to help keep down the cost of imported food, only Mr Carney can explain? Of course putting up rates will mean the jobs market will have to take a hit but sometimes corrections are necessary. Business can’t live on fake interest rates forever. Once again we see the BOE with its real estate glasses on, hoping for a property bubble to revive the economy. Mr Carney using one club to play the whole green. Mr Carney your number is up. Resign now. You don’t know what you are doing!

    • Gary C
      Posted August 4, 2016 at 9:12 pm | Permalink

      @Anthony Makara

      I agree, the BOE’s desire to fuel cheap lending while punishing the prudent has got to end, Carney should go.

  4. alan jutson
    Posted August 4, 2016 at 2:08 pm | Permalink

    This is all a bit above my pay scale, but will a 0.25% reduction in interest rates make any real difference to anyone’s decisions ?

    How will QE raise the value of the fallen Pound, surely printing money will reduce it further, if they wanted the pound to decrease in value, then that had already happened.

    Savers have just seen yet another cut in their income, not by a fortune that is true, but a cut nevertheless, so those who are retired with savings, will have less to spend.

    I agree with you John, I think it was far too early to make any sort of a decision on the result of Brexit, given we have also had the instability of a new Prime Minister and her Government on top of everything else.

    We have had 5 months of a war of words about what would happen to the economy, so I am truly amazed how well the economy has stood up so far, given fear dished out.

    Good grief we still have a New Government in recess, so no real action on any policy until September at least, let alone the uncertainty being caused with the delay in enacting article 50.

    I would have thought a delay of action by the BOE until after a third quarters figures have been released and digested would have been the right call.

    Meanwhile the doom mongers continue their trade.

  5. Dinero
    Posted August 4, 2016 at 2:22 pm | Permalink

    The phrase “created money” is not helpful in communicating a commentary about central bank a activity. All money used in commerce , central bank and commercial bank, is created as it arises from a balance sheet, its the liability side of a banks T account balance sheet. Assets on the left hand side and liabilities on the right hand side.

  6. Richard Butler
    Posted August 4, 2016 at 2:36 pm | Permalink

    Encouragingly the CBI have just announced it’s members reporting a healthy rise in export orders that should show up in actual exports in the coming months.

    So much gloom n doom is being pedalled in The Independent and Guardian all predicated on a bizarre over-statement of the benefits of the Single Market, given the fact many non EU nations export more into the EU than does the UK. In any event, there is no chance the teetering EU will seek to restrict EU / UK trade as this would benefit no one and cause much harm, the last thing the fragile EU Banks need.

    The comments from Bremoaners under news articles all predict the UK is going to utterly collapse, these small minded, cowardly flat earthers have no sense that the UK has seen the light and grasped the nettle first in what is the catalyst for a fundamental rebalancing of the UK economy away from selling one another houses and importing Chinese knickers. The record of EU trade delivery is appalling, we will do far better for ourselves. NZ’s experience of a trade deal with China is detailed in ‘Feeding The Dragon’ and is yet another example of excellent real world outcomes achievable by small independent nations, let alone the worlds no1 soft power, the UK.

    In my own business dealings I am hearing first hand reports of British importers now seeking UK manufactured alternatives and finding that in spite of Bremoaners assertion we make nothing these days, there are indeed good quality UK alternatives. One large firm is even bringing back manufacturing from China as the newly nimble UK global Tiger economy holds such fantastic prospects going forwards.

    We hold many negotiating aces to include access to our fishing grounds, so a decent trade deal with the EU is guaranteed, I just wish we’d hurry it along so as to stop the uncertainty holding trade back a bit and silence the cult of gloom tribe that are so afraid of life without the old Men of Brussels.

  7. Sir Joe Soap
    Posted August 4, 2016 at 2:49 pm | Permalink

    Absolutely correct.
    If we need to import 100k or so fewer additional workers to feed our domestic economy and housing market that will be great. These additional measures today will lead to overheating in these areas and as you say induce consumer inflation to add to asset price infatuon.

  8. ian
    Posted August 4, 2016 at 2:51 pm | Permalink

    I see that the new labour leaders 10 point plan is almost word for word of the new con party leader plan.

  9. Lifelogic
    Posted August 4, 2016 at 3:10 pm | Permalink

    Exactly. But I assume this line has-been nodded through by Hammondand May? Are they still in hiding it seems so?

  10. ian
    Posted August 4, 2016 at 3:14 pm | Permalink

    The 500 billion over a parliament for the new labour leaders plan is less than what they are spending now, i think he will to revisit his plan because other wise he be coming up short.

  11. CHRISTOPHER HOUSTON
    Posted August 4, 2016 at 3:17 pm | Permalink

    There does not seem any real difference to the majority of mortgage holders except those on trackers. It continues to make a mockery of people who have saved traditionally in a building society or bank or premium bonds….the older end perhaps, where and when share buying was not a realistic or understandable option. Like a Life Insurance policy, the rise in house prices are only good when you are dead and only for your relations. Though downsizing may release capital if you have managed to avoid loss of inherent house ownership “savings” by avoiding a divorce at the wrong time for the housing market… and a whole host of other considerations relating to the romantic view that house ownership for the average Joe is logical and indeed affordable over the medium to long-term given the fragility and inability of all capitalist economies to maintain stability of income and employment..
    To allow young couples-in-love, not abreast and cognisant of cool logical economics, a tad more few months to sink themselves into debt by taking out a huge 20-30 year loan for a house thanks to the B0E interest rates is as cruel as it is politically convenient.Pretty disgusting. But what we have grown to expect in these islands.

  12. Denis Cooper
    Posted August 4, 2016 at 3:43 pm | Permalink

    “The Bank admits it has to control inflation as well as avoid recession.”

    http://www.legislation.gov.uk/ukpga/1998/11/section/11

    “11 Objectives.

    In relation to monetary policy, the objectives of the Bank of England shall be –

    (a) to maintain price stability, and

    (b) subject to that, to support the economic policy of Her Majesty’s Government, including its objectives for growth and employment.”

    But it’s OK, if the Bank misses the inflation target the Governor sends a letter to the Chancellor explaining why, and the Chancellor replies “I see, well carry on”.

  13. Antisthenes
    Posted August 4, 2016 at 3:45 pm | Permalink

    A simple statement that as of this moment Brexit has and will have no effect on the economy until the details of the Brexit deal is known and it could be just as easily positive as negative. Everyone is jumping the gun for reasons that are suspiciously like they are for personal gain or from total ignorance and stupidity. By doing so they are destabilising the economy they are the problem not Brexit. If Carney had said that in more appropriate words of course the measures he is taken would not be necessary.

    The BBC and all those like it are slavering to cause as much mayhem as they can. There is no gain from good news for the likes of them. They really should feel proud of themselves.

  14. Lloyd Barnes
    Posted August 4, 2016 at 3:52 pm | Permalink

    Spare a thought for us poor owners of small manufacturing businesses using imported raw materials. Mr Carneys seeming fanaticism to drop the value of the pound is a real danger to us. We’ve seen the euro drop from 1.44 to 1.18 in around 6 months. In truth the £ was perhaps overvalued at 1.44 but to push through those cost increases to the market in 6 months is not easy. Not sure what we’d do if it dropped another 10%.

    Peoples jobs are at stake here for what is increasingly seeming like an institution sulking because its forecasts are being proven wrong.

    • Sir Joe Soap
      Posted August 5, 2016 at 9:04 am | Permalink

      Well yes the £ had just stabilised though prior to yesterday.
      As a small manufacturing business though we are seeing some dramatic changes towards using us as domestic suppliers. Try looking for domestic raw materials or add so much value that raw material costs are negligible. The more value you add the more competitive you’ll be.
      Having said that there will be an investment logjam because imported plant will be prohibitively expensive.

  15. Jerry
    Posted August 4, 2016 at 4:13 pm | Permalink

    “These [BoE] forecasts are very flexible, and doubtless wrong.

    The Bank should have waited to see proper data for output and activity for the first quarter or so after the vote before rushing in. [..//..] There is as yet no evidence of a collapse in demand or a serious likelihood of a Brexit induced recession.”

    Surely if it’s to early for the BoE to make worthwhile professional assessments then it is also to early for mere party politicos and others?

    Talk about wanting it both ways!…

    • Edward2
      Posted August 5, 2016 at 6:59 am | Permalink

      Our host is correct.
      The Bank should have waited a few months for actual data to arrive instead of guessing early.
      The Bank are not just “making assessments” they are acting very early.
      At this moment in time it would have been better if they had made some public statements calming post vote nerves.
      But they have been doing the opposite.

    • hefner
      Posted August 5, 2016 at 7:47 am | Permalink

      Seconded.

  16. acorn
    Posted August 4, 2016 at 4:17 pm | Permalink

    Brexiteers: Clutching At Straws. (Bank of England edition). Out of desperation, the act of reaching or stretching for a solution, no matter how irrational or inconsequential.

    Literally, a drowning Brexiteer who, unable to find any substantial floatation immediately at hand, attempts to save himself from certain death, by grabbing hold of a few stray pieces of straw floating on the water within arm’s length. (HT: Urban Dictionary).

    JR, we are not all Muppet voters out here. Some of us do actually understand how the system works, OK.

  17. David Lister
    Posted August 4, 2016 at 4:18 pm | Permalink

    John,

    I’m not sure if you are trying to suggest that the outlook is suddenly improved because the BoE is not forecasting recession. The statement on forecast is as follows:

    “Following the United Kingdom’s vote to leave the European Union, the exchange rate has fallen and the outlook for growth in the short to medium term has weakened markedly.”

    (directly from the BoE transcript, and not the BBC)

    You correctly point out that the B0E has to balance inflation and avoid recession. By their own forecasting they are doing just enough stimulus to keep the economy flat, whilst accommodating inflation slightly above target. Turning the knob a little further for less stimulus would tip the economy into recession territory which would be even worse news for your headline.

    I’m glad you can stay upbeat because I don’t read anything positive from the BoE Monetary Policy Statement.

    Reply I will give you more of their uncertainties and contradictions tomorrow.

  18. ale bro
    Posted August 4, 2016 at 4:31 pm | Permalink

    I find it slightly disturbing that this cut was telegraphed so far in advance (last month!) before the MPC had even met.

    Also, I’m not seeing the need for corporate bond underwriting – this isn’t a market that is frozen.

  19. petermartin2001
    Posted August 4, 2016 at 4:34 pm | Permalink

    “The Bank admits it has to control inflation as well as avoid recession. Its latest actions do not seem to take its inflation duty seriously enough.”

    Unless there has been a change from the previous regime the inflation target is 2%. Note this is a target and not an upper limit.

    So, if inflation is much lower than that, what you say is perfectly true, but not, I suspect, in quite the way you mean.

  20. ian wragg
    Posted August 4, 2016 at 4:49 pm | Permalink

    Same old, same old, reach for the printing press and be damned.
    carney is determined to have his recession aided and abetted by the BBC and remainiacs.
    What is the point of lowering interest rates to 0.25% other than to help the city spivs who are selling Sterling short.

  21. Anonymous
    Posted August 4, 2016 at 4:50 pm | Permalink

    “The predicted consequences of Brexit didn’t happen but we’re going to take the medicine anyway.” Bank of England

    “A hair dressing business went belly up in Islington – owing to Brexit” BBC. Brexit Brexit Brexit. Everything is down to Brexit.

    “Norwegian Somali goes wild in Russell Square – kills American tourist and injures many others.” Nothing to do with Islam – nothing to do with EU freedom of movement according to the BBC.

    Even when an Islamist commits an act of terrorism and posts a pre-video declaring that it is in the name of Islam the BBC says it’s nothing to do with Islam – preferring instead to say “So-called Islamic State”.

    Yet Brexit gets blamed for all economic woes. There is an item dedicated to how bad Brexit is on every news bulletin.

    Such bias.

    Therefore I conclude that it is not Brexit at fault but the BBC (and other news outlets) talking us into a downturn.

  22. Pete
    Posted August 4, 2016 at 4:55 pm | Permalink

    Quite clearly the Bank of England was lying. Not just wrong calculations but actual lies that anyone with any ability to analyse figures or history could see were lies. Heads should roll. Of course they won’t because nothing civil servants can do is enough to get them fired.

  23. ian
    Posted August 4, 2016 at 4:58 pm | Permalink

    250 billion given to the banking brethren to trundle along invest in government and corporate bonds and of cos the stock market as you can see by the way the stock market has gone up since the 23nd of june, its QE in all but name and now today more QE with a rate cut, that 330 billion in QE in one month but it could be more because they keep changing today amount, they have gone right through my target for borrowing by 2020 even if you just take the 70 billion pounds today which leave you at 1.7 trillion, blown john 1.695 billion right out of the water by 2020, so i am going to have to up my target a bit.

    Negative interest rates could be on now, how it works, you put your saving in the bank the bank then charge you money on your saving, then they can either lend that money out at 5% 10% or 20% or can give that money to borrowers to help them with there repayments, that why they are known as the parliament crime cartel which the parliament gives money to to make stock, bonds houses and food go up, they might lend them another 250 billion next year if things are not working out for the elite.

    I like the new con party leader who said she is working for everyone, no one will be left out.

    At least if you went with the new labour leader he might build something with the money.

  24. brian
    Posted August 4, 2016 at 5:26 pm | Permalink

    I think most people would prefer the Bank to try to avoid recession, possibly affecting their jobs, rather than fighting inflation to an arbitrary figure.
    It is likely that if no action was taken by the Bank and later by the Government we would have a recession. Confidence has been severely weakened by the vote to Leave the EU. Businesses and individuals will postpone decisions if they are uncertain of the future. There are reports that the agricultural industry is postponing purchases of items such as machinery because they are uncertain about the grants which emanate from the EU. So the uncertainties are not exclusively about markets.
    I don’t recall that the forecast of recession was given any timeframe. It could still have been a correct forecast.

  25. ian
    Posted August 4, 2016 at 5:49 pm | Permalink

    Yes it a 170 billion in QE today, that puts borrowing now at 1.8 trillion pounds and climbing.

    If you take the 250 billion given to banks in june it come to 2050 billion with 3.5 year to go to 2020.

    i am not going to try and work out how much they may borrow by 2020.

    The BOE man said its up to you the people to and borrow and spend as much as you can to help them out.

  26. ian
    Posted August 4, 2016 at 5:54 pm | Permalink

    and if you do not spend and borrow like mad it will be all the people of this country fault for letting the elite and parliament politician down, you the people have already been blamed for it not working.

  27. Edward.
    Posted August 4, 2016 at 5:59 pm | Permalink

    In my opinion, the BoE has acted in injudicious haste, it’s far too early to ascertain which way the economy is heading and despite what Information Handling Services Markit deliberates.
    I don’t believe, I can’t believe that, Mr. Carney just acted in the best interests of our nation, it seems his script is ordained from elsewhere and other than Westminster. Whose kidding who about the BoE’s much vaunted independence?

    Evidently, Britain has not pressed the exit button, although as soon as the nation can, it must extricate itself from the incipient Federal superstate with its customs union and all of the sclerosis onerous regulation it straps itself down with, the sooner we withdraw from le grand projet the better and financially speaking more the secure that Britain will be.

    What this present administration must attempt is, to crank the British engine of growth and alter policy to augment the British economy and by British means solely. Nicely, subtly we should divert away from the monetary financial laxity prosecuted via and because of Berlin, the Bundesbank in concert with the ECB pulling the levers within and across the EU.
    As I have said on here a day or so ago, Mr. Hammond has ample scope to readjust the UK economy, by using Fiscal controls and levers rather than the suspect vehicle of monetary methods.

    It is no secret that the large commercial banks in; Germany, Italy, Spain, France, Portugal et al are yet in deep and corrosive indebtedness. Furthermore, there are any number of imminent and very problematical crises which could push the EU financial system over the abyss, some say it’s a case of when and not if and I am inclined to agree and vehemently at that, for sure, the stresses within the €eurozone are pulling the single currency asunder, it’s just a matter of time.

    Thus, Mrs May and with her Chancellor have the opportunity to finesse the uncoupling that Britain requires urgently and from the impending financial calamity that is the EU, this is no time to dally, forsooth, there is no excuse to procrastinate over the divorce proceedings.

  28. Bob
    Posted August 4, 2016 at 6:22 pm | Permalink

    If the govt wants to stimulate the economy they should seek to remove red tape and tax complexity, eg stamp duty.

    The constant fidlding with tax rates and pension rules does nothing to inspire confidence.
    Just concentrate on reducing public squandering, like the £15,4oo consultants fee to remove a full stop from the logo of Southwark Council or the folloy of the 0.7% foreign aid payments.

    Just get a grip.

  29. zorro
    Posted August 4, 2016 at 6:26 pm | Permalink

    All pretty predictable as they are probably not happy that the pound was stabilising. Do not underestimate the hubris of the remainers….. Getting closer to just north of £500 billion QE that I predicted a few years back now. I see that the impartial BBC through Kamal Ahmed was ‘in like Flynn’ at the prediction of an increase in unemployment…. ‘Oh and that is the price of Brexit’ ….. Yeah, sure Kamal ?

    zorro

    • Anonymous
      Posted August 4, 2016 at 9:06 pm | Permalink

      With problems clearly caused by the EU the BBC never mentions the EU.

      • Bob
        Posted August 5, 2016 at 9:04 am | Permalink

        I don’t think I’ve ever heard anything negative about the EU from the BBC.

    • Denis Cooper
      Posted August 5, 2016 at 7:41 am | Permalink

      We did indeed predict that there could be another round of QE. Mind you, so far it has only been approved not executed.

  30. Caterpillar
    Posted August 4, 2016 at 7:47 pm | Permalink

    True.

  31. anon
    Posted August 4, 2016 at 7:51 pm | Permalink

    Why the rate cut? Cui bono.

    Or is this just theatre and drama & continuence of project fear.

    Looks like the independent elite are still want to playout out theme. I wonder what else is planned.

    Cutting Vat on fuel with an exempt number of units per household would help demand.

    Infrastructure spend which reduces long term imports and encourages exports would be good. (Hinkley was and is just plain silly money, rather have renewables % demand shift , shedding and storage)

  32. CHRISTOPHER HOUSTON
    Posted August 4, 2016 at 9:19 pm | Permalink

    The BoE appears to be following suit with what the ECB months ago; Australia a couple of days ago; Canada a few weeks ago and most economies in the world.
    Amazing that Canada, Australia and the whole of the European Union ALL were seemingly part of the European Union and ALL voted for Brexit , Canexit , Ausexit ,and EUexit more or less the same time as the UK and ALL are suffering from “Uncertainty” which only QE and an “interest rate cut” can resolve to “save jobs”. Mr Carney is a treasure. We should keep him with the rest of the treasure in the Tower.

  33. Lindsay McDougall
    Posted August 5, 2016 at 1:32 am | Permalink

    The UK economy is already headed for severe inflation a couple of years down the road. It needs additional monetary stimulus like it needs a hole in the head. Governor Carney has produced a quack cure for a problem that doesn’t exist. Predictably, the consequences of Thursday’s decisions were a rise in the FTSE and a fall in sterling, clear indicators that the markets believe there is inflation to come.

    Let’s just recap where we are with inflation:
    CPI inflation, which excludes house prices, has gone up from 0.0% to 0.5%
    This is in spite of the oil price remaining ultra low at $42 per barrel, partly as a result of cost savings made by the US fracking industry
    House prices have rocketed since 2012
    Art, fine wines and other things that the rich spend money on are on the up

    Inflation targetting is great for monetary control, provided that you include things the rich spend their money on, and exclude VAT and excise duty, which are taxes not prices.

    Let’s identify what would help new entrants to the mortgage market:
    – Vastly reduced immigration to damp down demand
    – Low deposits, so that you don’t need a rich mum or dad
    – Higher interest rates, which will produce rationing by price and dampen down house prices
    – Bearing down on pensions increases, so that the elderly have to downsize earlier

    When the elderly want to downsize, there will be opportunities for direct exchanges with younger couples who want to upsize – no long chains.

  34. Malcolm Lidierth
    Posted August 5, 2016 at 2:50 am | Permalink

    Last month, markets adjusted in anticipation of rate cut that did not materialise (and which was clearly not likely to materialise from what Carney had said if listened to carefully enough).

    This month, markets adjusted again in anticipation of stimulus. What they got was more than expected (and perhaps more than is justified given the paucity of solid data as blog says).

    Not certain that running commentary the BoE now gives beyond MPC minutes is helpful. Was timing or size of today’s stimulus influenced by market mis-reaction last month? Desire not to disappoint again?

    Danger of unstable feedback loop where bank anticipates market anticipation/market anticipates bank’s anticipation. Second guesses then supplemented by 3rd, 4th, 5th … guesses.

  35. Patricia
    Posted August 5, 2016 at 8:00 am | Permalink

    What is mr Carney doing… Punishing the UK for its brexit action! Put the rate back… Your halving the half will do nothing positive.

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    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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